Social Security retirement benefits are calculated using your highest 35 years of indexed earnings, not just your recent income.
The Social Security Administration (SSA) determines your monthly retirement benefit by first calculating your average indexed monthly earnings (AIME) over your highest 35 years of earnings. These earnings are adjusted for inflation to reflect their value over time. Then, a formula is applied to your AIME to arrive at your primary insurance amount (PIA), which is the benefit you would receive if you start claiming at your full retirement age. Finally, your benefit is adjusted based on the age you choose to begin receiving payments.
This information provides a general overview of how Social Security benefits are calculated and does not constitute financial advice.
What information do I need to use a Social Security payout estimate calculator effectively?
To use a Social Security payout estimate calculator effectively, you will need your earnings history, ideally from your latest Social Security Statement. This includes your annual earnings for each year you have worked. You should also know your current age and have an idea of your expected retirement age. If you plan to continue working, estimating your future annual income is also helpful. The more accurate the information you provide, the more reliable the estimate will be.